Chennai: The government is likely to increase the GST rate on gold and silver to 5 per cent from the current 3 per cent. The Budget has decreased the basic customs duty before hiking the GST.
The government has brought down the basic customs duty on gold bars from 15 per cent to 6 per cent and the Agriculture Infrastructure & Development Cess (AIDC) on duty has come down from 5 per cent to 1 per cent. After applying the GST rate of 3 per cent, the effective taxes on gold have come down to 9 per cent from 18.5 per cent earlier. Similarly, the effective tax rate on silver bars also has come down to 9 per cent.
According to the industry, the customs duty rate reduction could be a precursor to the GST rate hike. Finance Minister Nirmala Sitharaman mentioned about simplification and rationalization of GST rates in the Budget. The GST rates are likely to go up from 3 per cent to 5 per cent.
“The government is likely to increase the GST rate on gold and silver to 5 per cent. While the customs duty reduction will have a positive impact on the smuggling of gold, which has become rampant in recent times, a GST rate increase can compensate for part of the revenue loss,” said Ajay Kedia, MD, Kedia Commodities.
The increase in GST rates is good news for the state governments as the increased rates will provide them with higher tax revenue compared to their share of central tax revenues. Further, the cess and surcharge revenues are not shared with the state governments.
“As the state governments get a higher share of the tax revenues, they might be keen to act against smuggling,” said Somasundaram P R, former regional CEO, India, World Gold Council.
